March 04, 2008

Requiem for February:

An average of 3,960 bankruptcy petitions were filed per day nationwide last month, up 18 percent from January and up 28 percent from a year earlier, according to Automated Access to Court Electronic Records, a bankruptcy data and management company.

February was the busiest month for filings since Congress overhauled the bankruptcy law in 2005. Bankruptcy experts said the rise was particularly worrisome because those changes made filing for bankruptcy more complicated and expensive.

“This number of bankruptcies may be under-representative of the true financial distress consumers are feeling because of the steps Congress has taken,” said Jack Williams, a scholar in residence at the American Bankruptcy Institute and a professor at Georgia State University.

The latest figures show the financial pain is spreading from states like California and Florida, which exemplified the housing boom and subsequent bust, to those along the Eastern Seaboard like Maryland, Virginia and Delaware, which were among the 10 states with the largest percentage increase in filings in January and February. “You are seeing a good-size uptick everywhere,” said Mike Bickford, president of Automated Access.

Bankruptcy experts caution, however, that data from just one or two months can be misleading.

“The monthly bankruptcy filing rate has a lot of cyclicality,” Robert M. Lawless, a professor of law at the University of Illinois College of Law, wrote on Tuesday on the widely read bankruptcy blog, Creditslips.org. Some experts, for example, say bankruptcies often seem to rise in February as debts from the holiday season come due. Even so, the trend is definitely upward, Mr. Lawless wrote. States as disparate as Kentucky and Rhode Island joined the top 10 list, and the absolute number of filings rose significantly.

--N.Y. Times (3/5/2008). In fact, the cyclicality mentioned above normally increases even more in March, April and May, with the X-mas holiday and summer months being the slow time for filings. People like to hang on through the holiday season, max out their credit cards to insure that a Merry Christmas and a Happy New Year is had by all, then file after they get one or two bills behind (something like that also happens during the summer, when it's vacations and weddings for which debtors go all-in).

On the other hand (you knew that was coming), the fact that the number of filings reached a post-YBK peak last month is not particularly interesting. Almost every month since BARF went into effect in October, 2005, has seen an increase; the most noticeable thing YBK accomplished was that it created a panic before the new law went into effect, leading many people who hadn't planned on filing, or even desired filing, to head to the Bankruptcy Court to get their bankruptcy done before the change occurred. In the twenty-eight months since, it has taken the toxic combo of a collapsing real estate market and a massive credit crunch (brought on, in no small part, by YBK) leading to recession that has returned the monthly level of filings to its historic, pre-BARF norms.